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374 SUPREME COURT REPORTS ANNOTATED

Northern Motors, Inc. vs. Coquia

*
No. L-40018. December 15, 1975.

NORTHERN MOTORS, INC., petitioner, vs. HON. JORGE

R. COQUIA, etc., et al., respondents, FILINVEST CREDIT
CORPORATION, intervenor.

Contracts; Chattel mortgage; Mortgaged chattel answers for

mortgage credit; Mortgagee not required to file independent action
for enforcement of his credit.—The essence of the chattel mortgage
is that the mortgaged chattels should answer for the mortgage
credit and not for the judgment credit of the mortgagor’s
unsecured creditor. The mortgagee is not obligated to file an
“independent action” for the enforcement of his credit. To require
him to do would be a nullification of his lien and would defeat the
purpose of the chattel mortgage which is to give him preference
over the mortgaged chattels for the satisfaction of his credit.
Same; Same; Registration of chattel mortgage; Effect of.—The
registration of the chattel mortgage is an effective and binding
notice to the assignee of the unsecured judgment creditor of the
chattel mortgagor of its existence. The mortgage creates a real
right or a lien which, being recorded, follows the chattel wherever
it goes.
Same; Same; Execution sale; Purchaser acquires only fight of
mortgagor to redeem property.—At an execution sale, the buyers
acquire only the right of the judgment debtor which is a mere

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right or equity of redemption. The sale does not extinguish the

preexisting mortgage lien.
Same; Same; Same; Where mortgaged property no longer
recoverable, proceeds of execution sale may be regarded as partial
substitute for unrecoverable property; Case at bar.—The execution
was not justified and the mortagee was entitled to the possession
of the taxicabs. Those cabs should not have been levied upon and
sold at public auction to satisfy the judgment credit which was
inferior to the chattel mortgage. Since the cabs could no longer be
recovered because apparently they had been transferred to
persons whose addresses are unknown, the proceeds of the
execution sale may be regarded as a partial substitute for the
unrecoverable cabs. The mortgagee is entitled to the entire
proceeds without deduction of the expenses of execution.

_______________

* EN BANC

375

VOL. 68, DECEMBER 15, 1975 375

Northern Motors, Inc. vs. Coquia

RESOLUTION
of Motions for Reconsideration

AQUINO, J.:

Respondent Honesto Ong and City Sheriff of Manila filed a

motion for the reconsideration of this Court’s resolution of
August 29, 1975. In that resolution, it was held that the
lien of Northern Motors, Inc., as chattel mortgagee, over
certain taxicabs is superior to the levy made on the said
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cabs by Honesto Ong, the assignee of the unsecured

judgment creditor of the chattel mortgagor, Manila Yellow
Taxicab Co., Inc.
On the other hand, Northern Motors, Inc. in its motion
for the partial reconsideration of the same August 29
resolution, prayed for the reversal of the lower court’s
orders cancelling the bond filed by Filwriters Guaranty
Assurance Corporation. Northern Motors, Inc. further
prayed that the sheriff should be required to deliver to it
the proceeds of the execution sale of the mortgaged
taxicabs without deducting the expenses of execution.

1. Respondents’ motion for reconsideration.—Honesto

Ong in his motion invokes his supposed “legal and
equity status” vis-a-vis the mortgaged taxicabs. He
contends that his only recourse was to levy upon
the taxicabs which were in the possession of the
judgment debtor, Manila Yellow Taxicab Co. Inc.,
whereas, Northern Motors, Inc., as unpaid seller
and mortgagee, “has still an independent legal
remedy” against the mortgagor for the recovery of
the unpaid balance of the price.

That contention is not a justification for setting aside the

holding that Ong had no right to levy upon the mortgaged
taxicabs and that he could have levied only upon the
mortgagor’s equity of redemption. The essence of the
chattel mortgage is that the mortgaged chattels should
answer for the mortgage credit and not for the judgment
credit of the mortgagor’s unsecured creditor. The
mortgagee is not obligated to file an “independent action”
for the enforcement of his credit. To require him to do so
would be a nullification of his lien and would defeat the
purpose of the chattel mortgage which is to give him
preference over the mortgaged chattels for the satisfaction
of his credit. (See art. 2087, Civil Code).

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It is relevant to note that intervenor Filinvest Credit

Corporation, the assignee of a portion of the chattel
mortgage credit, realized that to vindicate its claim by
independent action
376

376 SUPREME COURT REPORTS ANNOTATED

Northern Motors, Inc. vs. Coquia

would be illusory. For that pragmatic reason, it was

constrained to enter into a compromise with Honesto Ong
by agreeing to pay him P145,000. That amount was
characterized by Northern Motors, Inc. as the “ransom” for
the taxicabs levied upon by the sheriff at the behest of
Honesto Ong.
Honesto Ong’s theory that Manila Yellow Taxicab’s
breach of the chattel mortgage should not affect him
because he is not privy of such contract is untenable. The
registration of the chattel mortgage is an effective and
binding notice to him of its existence Ong Liong Tiak vs.
Luneta Motor Company, 66 Phil 459). The mortgage
creates a real right (derecho real, jus in re or jus ad rem, XI
Enciclopedia Juridica Espanola 294) or a lien which, being
recorded, follows the chattel wherever it goes.
Honesto Ong’s contention that Northern Motors, Inc.
was negligent because it did not sue the sheriff within the
120-day period provided for in section 17, Rule 39 of the
Rules of Court is not correct. Such action was filed on April
14, 1975 in the Court of First Instance of Rizal, Pasig
Branch XIII, in Civil Case No. 21065 entitled “Northern
Motors, Inc. vs. Filwriters Guaranty Assurance
Corporation, et al.”. However, instead of Honesto Ong, his
assignor, Tropical Commercial Corporation, was impleaded
as a defendant therein. That might explain his
unawareness of the pendency of such action.
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The other arguments of Honesto Ong in his motion may

be boiled down to the proposition that the levy made by
mortgagor’s judgment creditor against the chattel
mortgagor should prevail over the chattel mortgage credit.
That proposition is devoid of any legal sanction and is
glaringly contrary to the nature of a chattel mortgage. To
uphold that contention is to destroy the essence of chattel
mortgage as a paramount encumbrance on the mortgaged
chattel.
Respondent Ong admits “that the mortgagee’s right to
the mortgaged property is superior to that of the judgment
creditor”. But he contends that the rights of the purchasers
of the cars at the execution sale should be respected. He
reasons out they were not parties to the mortgage and that
they acquired the cars prior to the mortgagee’s assertion of
its rights thereto.
That contention is not well-taken. The third-party claim
filed by Northern Motors, Inc. should have alerted the
purchasers to the risk which they were taking when they
took part in the auction sale. Moreover, at an execution
sale the buyers acquire
377

VOL. 68, DECEMBER 15, 1975 377

Northern Motors, Inc. vs. Coquia

only the right of the judgment debtor which in this case

was a mere right or equity of redemption. The sale did not
extinguish the preexisting mortgage lien (See sec. 25, Rule
39, Rules of Court; Potenciano vs. Dineros and Provincial
Sheriff of Rizal, 97 Phil. 196; Lara vs. Bayona, 97 Phil. 951;
Hacbang vs. Leyte Autobus Co., Inc, L-7907, May 30, 1963,
8 SCRA 103).
Some arguments adduced by Honesto Ong in his motion
were intended to protect the interests of the mortgagor,
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Manila Yellow Taxicab Co., Inc., which he erroneously

characterized as a “respondent” (it is not a respondent in
this case). Ong argues that the proceeds of the execution
sale, which was held on December 18, 1974, should be
delivered to Northern Motors, Inc. “only to such extent as
has exceeded the amount paid by respondent Manila
Yellow Taxicab to” Northern Motors, Inc. That argument is
not clear. Ong probably means that the installments
already paid by Manila Yellow Taxicab Co, Inc. to Northern
Motors, Inc. should be deducted from the proceeds of the
execution sale. If that is the point which Ong is trying to
put across, and it is something which does not directly
affect him, then, that matter should be raised by Manila
Yellow Taxicab Co., Inc. in the replevin case, Civil Case No.
20536 of the Court of First Instance of Rizal, Pasig Branch
VI, entitled “Northern Motors, Inc. versus Manila Yellow
Taxicab Co., Inc. et al.”
Ong’s contention, that the writ of execution, which was
enforced against the seven taxicabs (whose sale at public
auction was stopped) should have precedence over the
mortgage lien, cannot be sustained. Those cabs cannot be
sold at an execution sale because, as explained in the
resolution under reconsideration, the levy thereon was
wrongful.
The motion for reconsideration of Ong and the sheriff
should be denied.

2. Petitioner’s motion for partial reconsideration.—The

lower court in its order of January 3, 1975 cancelled
the indemnity bonds for P480,000 filed on
December 18, 1975 by Filwriters Guaranty
Assurance Corporation for Tropical Commerical
Co., Inc. The bonds were cancelled without notice to
Northern Motors, Inc. as third-party claimant.

We already held that the cancellation of the bonds

constituted a grave abuse of discretion but we previously
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denied petitioner’s prayer for the reinstatement of the

bonds because Northern Motors Inc. had given the
impression that it had not filed any action for damages
against the sheriff within the one hundred twenty-day
period contemplated in Section 17, Rule 39 of the
378

378 SUPREME COURT REPORTS ANNOTATED

Northern Motors, Inc. vs. Coquia

Rules of Court.
As already noted above, the truth is that such an action
for damages was filed on April 14, 1975 against the surety,
the sheriff and the judgment creditor in Civil Case No.
21065 of the Court of First Instance of Rizal, Pasig Branch
XIII. The action involves the indemnity bond for P240,000
(No. 0032 posted on December 18, 1974).
It may also be noted that in a prior case, Civil Case No.
20536 of the Court of First Instance of Rizal at Pasig,
entitled “Northern Motors, Inc. vs. Manila Yellow Taxicab
Co., Inc., et al.”, a replevin case (where an amended
complaint dated January 15, 1975 was filed), the surety,
Filwriters Guaranty Assurance Corporation, was
impleaded as a defendant by reason of its bond for
P240,000. Northern Motors, Inc. in that case prayed that
the surety be ordered to pay to it damages in the event that
the eight taxicabs could not be surrendered to the
mortgagee.
Northern Motors, Inc., in its instant motion for partial
reconsideration, reiterates its petition for the
reinstatement of the bond filed by Filwriters Guaranty
Assurance Corporation. If the said bond is not reinstated or
if the lower court’s orders cancelling it are allowed to stand,
the aforementioned Civil Cases Nos. 20536 and 21065
would be baseless or futile actions against the surety. That
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injustice should be corrected. Hence, our resolution of

August 29, 1975, insofar as it did not disturb the lower
court’s orders cancelling the indemnity bonds, should be
reconsidered.
Northern Motors, Inc. further prays for the
reconsideration of that portion of our resolution allowing
the sheriff to deduct expenses from the proceeds of the
execution sale for the eight taxicabs which sale was held on
December 18, 1974. It argues that Honesto Ong or Manila
Yellow Taxicab Co., Inc. should shoulder such expenses of
execution.
We already held that the execution was not justified and
that Northern Motors, Inc., as mortgagee, was entitled to
the possession of the eight taxicabs. Those cabs should not
have been levied upon and sold at public auction to satisfy
the judgment credit which was inferior to the chattel
mortgage. Since the cabs could no longer be recovered
because apparently they had been transferred to persons
whose addresses are unknown (see par. 12, page 4, Annex
B of motion), the proceeds of the execution sale may be
regarded as a partial substitute for the unrecoverable cabs
(See arts. 1189[2] and 1269, Civil Code;
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VOL. 68, DECEMBER 15, 1975 379

Northern Motors, Inc. vs. Coquia

Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632).
Northern Motors, Inc. is entitled to the entire proceeds
without deduction of the expenses of execution.
WHEREFORE, private respondents’ motion for
reconsideration is denied and petitioner’s motion for partial
reconsideration is granted. The resolution of August 29,
1975 is modified in the sense that the lower court’s orders
of January 3 and 6, 1975, cancelling the indemnity bond for
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P240,000 (as reaffirmed in its order of January 17, 1975),

are set aside. The said indemnity bond for P240,000 is
regarded as in full force and effect. Respondent Sheriff of
Manila is further directed to deliver to Northern Motors,
Inc. the entire proceeds of the execution sale held on
December 18, 1974 for the eight taxicabs which were
mortgaged to that firm.
SO ORDERED.

          Makalintal, C.J., Teehankee, Makasiar, Antonio,

Esguerra, Muñoz Palma, Concepcion Jr., and Martin, JJ.,
concur. Castro, Fernando, and Barredo, JJ., did not take
part.

Motion denied.

Notes.—a) Foreclosure sale of chattels mortgaged.—In a

foreclosure sale of chattels mortgaged, just as in any
ordinary contract of sale, there must be a specific subject.
There must be a “meeting of the minds” with respect to the
subject of the contract, i.e., that what the vendor is selling
is exactly the same as what the vendee is purchasing. In
the absence of such an understanding, no sale may be
considered perfected. Where there was a misunderstanding
at the foreclosure sale between the sheriff and the bidder
as to the identity of the properties being sold, the sale is
not a valid one (Lang vs. Acting Provincial Sheriff of
Surigao, 93 Phil. 661).
b) Extrajudicial foreclosure of chattel mortgage.—The
Chattel Mortgage Law grants the creditor the right to
foreclose the mortgage extrajudicially and the provisions of
the Rules of Court relative to compulsory counterclaims
should not be so construed as to repeal or abrogate this
substantive right of the creditor. In other words, despite
the said provision, the creditor is entitled to invoke and
assert his right to extrajudicial foreclose. But where
extrajudicial foreclosure can not take place because of the
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obstinate refusal of the debtor to surrender the mortgaged

chattel to the sheriff, the debtor should not and may not be
permitted to limit the creditor’s right to a mode of
380

380 SUPREME COURT REPORTS ANNOTATED

Vda. de Olib vs. City of Manila

redress the effectivity of which the said debtor had defeated

by his own acts and omissions. The creditor should be
permitted to enforce his rights judicially even after having
failed extrajudicially. The relation between the parties may
be likened to an alternative obligation—the debtor’s debt
may be enforced either against the mortgaged chattel
exclusively or against the general mass of his assets, at the
option of the creditor. If one option is, in effect, denied or
becomes impossible through the debtor’s fault, the creditor
may, pursuant to article 1205 of the new Civil Code, claim
the subsisting alternative (Papa vs. Banaag, L-21442,
August 31, 1966).

——o0o——

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